In a recent decision in the case of Texas Instruments
(India) Pvt Ltd, AAR No. 1299, the Indian Authority for Advanced Rulings (AAR)
held that salary paid in India to an Indian who was working in the United
States and not a current resident of India was not taxable in India or subject to withholding there. The Indian
Revenue Department had argued that even though the employee was not currently
residing in India, he would still be liable for taxes there; even though he was
on the payroll of the U.S. entity, part of the salary was actually paid in
India, and that portion was subject to Indian tax and withholding.
The AAR reviewed the various applicable sections of the
Indian tax statutes and concluded that no part of a nonresident’s salary for
employment outside India is taxable in India regardless of where it is paid. Even
though the withholding statute could be read to include the salary paid in
India, the statute governing taxation of salaries compels a different result. Under
that statute, the AAR held that it is not the citizenship of the recipient, or
where the salary is received, that is relevant. Rather, it is the jurisdiction
in which the services are rendered. If the recipient is not a resident of
India, and receives salary for working outside India, the salary is not taxable
in India. The AAR also allowed the employee a tax credit against other Indian
tax for taxes paid to the U.S.
The case clears up uncertainty that had surrounded the
Indian Department of Revenue’s interpretation of the Indian tax law, and will
be of assistance to Worldwide ERC® members who bring Indian workers to the U.S.
for temporary employment.